Environmentally concerned car buyers will see some federal tax breaks for energy efficient hybrids start shrinking this fall.
Toyota Motor Corp. has hit the production limit — 60,000 — on vehicles eligible for a special tax credit designed to encourage more buyers to choose gas-electric hybrids.
Spokeswoman Martha Voss said Thursday that the automaker sold its 60,000th such vehicle in May.
That means the tax credits for Toyota and Lexus hybrids will be cut in half for drivers who purchase their vehicles beginning in October, she said. The $3,150 credit for the popular Toyota Prius, the largest hybrid tax credit available, would shrink to $1,575.
Six months later, beginning next April, the tax credits will shrink to one-quarter of their original value. They will disappear by October 2007.
Hybrids account for a very small percentage of the market, but they have grown in popularity with gas prices topping $3 a gallon.
Taxpayers could still claim a full tax credit for purchasing hybrids made by other manufacturers, such as Honda Motor Co., Ford Motor Co. and General Motors Corp., until those manufacturers trigger the credit limits or the tax break expires in 2011.
Tax credits for hybrids range from $250 to $2,600, depending on the make and model of vehicle. A credit reduces taxes dollar-for-dollar.
The tax break, part of a mammoth energy plan enacted last summer and designed to promote cleaner energy and more conservation, lets buyers claim a credit worth up to $3,400 for purchasing new hybrids.
But the law limited that tax credit to the first 60,000 vehicles that a manufacturer produces. After the manufacturer hits that limit, the full credit is available only through the next quarter. The credit then shrinks to half its value for six months, and then to one-quarter for another six months, before disappearing entirely.
Toyota hybrid sales have outpaced other hybrid manufacturers. The IRS, which tracks hybrid production for taxpayers, certified that Toyota sold 41,779 hybrids from January through March this year. During the same period, Honda sold 9,072 hybrids and Ford sold 6,192.
President Bush asked Congress to make all hybrid vehicles sold this year eligible for the tax break, one element of a proposal to reduce oil and gas consumption. It was not clear if Congress would act on that this year.
IRS background on the tax credits is online at www.irs.gov/newsroom/article/0,,id=157557,00.html